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Question: I am about to graduate from college and jump into the workforce. Do you have any advice as I make this transition and start managing my own financial situation?

Answer: Many graduates are preparing for a virtual commencement ceremony and this spring graduation season will likely look different than past years. We are thrilled to hear your excitement and interest in your next steps in life and congratulate you on your graduation and your desire to take smart steps to secure your financial future in the long term. The unfortunate fact is many college graduates may land great jobs right out of college but will end up creating years of debt and poor credit because of bad spending habits. Below are our best tips for college graduates who want to establish and maintain a robust financial future.

Create a budget. Building a budget is relatively simple. Begin with your monthly inflow (net pay after appropriate tax withholding). Then, make a list of monthly cash expenses classified in two columns – needs versus wants. For example, money for rent, food, student loan payments and the like are “needs”. Your “wants” may include a gym membership or a Netflix subscription. You may need a car to get to and from work. However, based on your salary and other expenses, you should purchase an automobile in a price range that fits into your budget. See how all of these expenses add up against your monthly inflow, and adjust accordingly.

Prepare for student loan payments, Since most student loans don’t require payment until graduation, the monthly requirement can cause sticker shock for many graduates. If you are able, consider budgeting for more than the minimum payment required to help pay down those loans faster.

Practice delayed gratification. When it comes to creating a healthy financial future, you must apply patience and avoid instant gratification when it comes to your finances. Do you really need a new car or could you find a used one with lower monthly payments? If it is an option, how much could you save if you took advantage of public transportation? To be truly productive in your financial planning, you must understand the relationship of time as it relates to growing your money.

Consider compounding. The “magic” of compounding is the investment growth in your account in a single time period becomes the basis for your return in the next. One of the biggest financial blunders many young people make is waiting until later in life to start saving for their future. Unfortunately, the longer you wait to begin saving, the more money it will take to reach the same financial goal.

Start your nest egg. Contribute to your company’s 401(k) plan, if offered, as soon as you are eligible. Many young people begin by contributing a small percentage of salary at first and then increase the amount in the future as they get raises. The 401(k) contributions are invested before taxes (or after taxes in the case of a Roth 401(k)) and your account balance has years to grow and compound. In addition, your contributions may be matched by your employer, making your nest egg that much bigger.

Use credit wisely. While many credit cards offer a tempting array of perks or points, don’t fall victim to credit card promotions. Unless you are able to pay your credit cards off each month in full, you shouldn’t use them. By avoiding credit card debt and paying your bills on time each month, you will also build a positive credit rating which will be important the next time you shop for a loan or insurance.

Have a back-up plan. Things happen, so it's important to be financially prepared when the unexpected occurs. Have a plan If your cell phone breaks or your laptop stops working or if we have another crisis such as the one we are experiencing today with COVID-19. You should begin putting money into an emergency fund immediately with a goal of accumulating at least 3 – 6 months’ worth of your expenses. Having an emergency fund will also keep you from racking up credit card debt, when say, your car requires costly repairs.

As you progress in your career and your life, your responsibilities and financial goals will change. Educate yourself as much as possible about personal finance by reading articles and books, listening to podcasts, and talking to experts. Wealth is not created by how much you make, but by how much you keep. Don’t be afraid to approach a financial professional for advice early—it may pay dividends well into your future.

Congratulations, graduate!

Crystal Faulkner is Cincinnati market leader with MCM CPAs & Advisors, a CPA and advisory firm offering expert guidance and beyond the bottom line thinking for today’s public and private businesses large and small, not-for-profits, governmental entities and individuals. Tom Cooney is with Wealth Dimensions, an investment advisory firm. For additional information, call 513-768-6796 or visit online at mcmcpa.com. You can listen to Tom and Crystal daily on WMKV and WLHS on “BusinessWise,” a morning and afternoon radio show that profiles highly successful people, companies, organizations and issues throughout our region.

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